Stocks drop and oil rises as Hormuz hopes fade

Asian stocks mostly fell and oil prices extended gains on Tuesday as hopes for a reopening of the Strait of Hormuz fade amid expectations the Federal Reserve will hike interest rates again next month. Hopes for an easing of Middle East tensions were dashed at the weekend when Donald Trump rejected Iran’s offer for a seven-day truce.

Trump said talks would resume this week but that was unable to lift the gloom on market floors, with traders contemplating further rises in inflation that will force the Fed to tighten monetary policy more. The US president on Monday denied a report by the news outlet Axios that he offered Iran sanctions relief and the release of frozen funds, as the Middle East war drags on.

“Axios just released a story that ‘Trump’ offered Sanctions Relief and Frozen Funds to Iran. This is untrue. I offered them NOTHING!,” Trump said on his Truth Social platform. The story, quoting unidentified US officials, said Trump “is willing to give Iran sanctions relief and release Iranian frozen funds in return for concrete Iranian steps regarding the nuclear program”.

The 80-year-old Republican called the story “a HOAX” and said the news site should withdraw it. However, Iran’s state broadcaster said the country’s foreign minister, Abbas Araghchi, will meet Qatari representatives. The talks are expected to focus on “messages exchanged with the United States through intermediaries… particularly regarding the conditions set by Iran for the reopening of the Strait of Hormuz”. Tehran officials have privately expressed pessimism about making a deal to reopen Hormuz before November’s US midterm elections, Bloomberg reported sources as saying.

The waterway is key to the world’s oil and gas deliveries and is now central to the US-Iran conflict, particularly with the Iran-backed Houthis seizing Yemen’s entire Red Sea coast, including the Bab al-Mandab Strait, another vital shipping lane. “Our expectations remain that the conflict will be with markets for the foreseeable future and the global economy will continue adjusting to the realities of the supply disruptions,” said Ian Lyngen at BMO Capital Markets.